China Petroleum & Chemical Corporation

China Petroleum & Chemical Corporation, also known as Sinopec, is one of the major oil and gas companies in China. The company is a majority-owned subsidiary of the state-owned Sinopec Group. Its operations include the exploration, production, storage and transportation of petroleum and natural gas. The company has faced a number of environmental and social allegations on which we engage. Another important topic is the disclosure of the company’s environmental performance, which is a crucial step in the development of a strategy for the transition to the low-carbon environment.

BackgroundWe began engagement with the company in 2009, following health and safety concerns about its operations. Due to its dominant position in the energy and petrochemical sector and interest in shale gas, we also created an engagement objective to push for the disclosure of carbon emissions and energy consumption information in its annual sustainability report.

What we didWe first raised concerns about the company’s lack of information and explanation of its climate change strategy and risk mitigation measures with senior executives in 2014. In the following years, we urged the company to set internal targets for the disclosure of carbon emissions information and regularly checked on progress. In 2015, we supported the UN Global Compact (UNGC) seminar hosted by the company in Beijing to discuss its group-wide initiative on greenhouse gas emissions reduction and disclosure. A year later, at the invitation of the company, we contributed to a discussion on the formulation of an internal carbon price across the group. We encouraged its executives to attend the first climate change training workshop by the CDP initiative in Beijing. We spoke at the workshop to provide a shareholder view of the importance of climate change and disclosure of emissions information.

In early 2018, we held a private workshop on the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) with the company and discussed how to analyse its portfolio resilience to a number of relevant low-carbon scenarios.

ResultsThe company created a group-wide initiative comprising of 285 smaller projects, including de-sulphuring units and other ventures designed to reduce greenhouse gas emissions and promote environmental protection. It has set up a number of internal task forces to assess its climate change-related risks and identify opportunities that can be incorporated into its longer-term business strategy. It increased its investments in energy-saving and environmentally-friendly projects. As a member of the UNGC, it also hosted a number of related events in China.

In addition, the company made changes to the criteria and processes for its investments in new projects, such as the inclusion of a stress-test of the financial impact of low-carbon scenarios. This has led to the rejection of some projects.

The company attended CDP training sessions as recommended by us and reviewed global and local best practices. This was followed by its first disclosure to the CDP in 2017. In the second quarter of 2018, the company disclosed its absolute level of carbon emissions by business divisions for the first time.

We continue to encourage the company to improve the consistency in the disclosure of its greenhouse gas emissions, to further refine its climate change risks and opportunities assessment framework and to adopt science-based targets as per the TCFD recommendations. We will also increase our engagement on the measurement and reduction of methane emissions.

Christine Chow

Sector lead: Technology

Dr Christine Chow manages the team of engagement associates at Hermes EOS and is the technology sector lead. She has over 20 years of experience in investment management, research and consulting. Christine's PhD thesis on shareholder engagement for responsible investment was short-listed for a United Nations award in Sweden for industry relevance and academic excellence. Christine is an elected member of the Court at the London School of Economics (LSE) and a member of the School’s Investment Sub-Committee (since 2016). In January 2019, she was appointed a member of the Data Governance Task Force of the UK All Party Parliamentary Group on Artificial Intelligence. She was an adjunct finance professor at the Hong Kong University of Science and Technology (2014 – 2016), a visiting scholar at the University of St Andrews in Scotland (2012 – 2013) and a member of the Greater China Committee of the Hong Kong Retirement Funds Association (2014-2016). Christine is a graduate of the London School of Economics and the University of Melbourne. She completed an executive education course on financial engineering at Stanford University.